Can I Divorce-Proof My Business?

An ounce of prevention is worth a pound of cure.

Should I do everything I can to help prevent the financial trauma associated with it? Absolutely! People don’t get married planning to get a divorce, but if you are a business owner, you need to be mindful of the possibility.

Educating yourself about dissolution of marriage laws in Florida and hiring a qualified attorney are the first steps towards safeguarding your hard work. In a few states “Community Property” laws rule and all assets are split 50/50. Florida, along with 40 other states, uses “Equitable Distribution” laws and many things are taken into consideration when the courts rule on what is deemed fairor equitable for both spouses.

Let’s say a person builds a business, gets married, shares a life and then ends the marriage. In equitable distribution states, the courts may find that one half of the business which has been built up or created during the marriage may be owed to the non-business-owning spouse.

“Most owners of privately held companies would be hard put to come up with cash equal to a quarter or a half of their business's value without, at best, wreaking havoc on their company's operations or, at worst, having to sell part or all of their business.” (source)

So start with a prenuptial agreement focused on the business. “A prenuptial agreement (prenup) is a contract signed by both parties before their wedding that details what their property rights and expectations (including alimony) would be upon divorce.” (source) Work with your attorney and be sure to cover the following issues:

Define what is to be considered “separate property” and “marital property”—put it in writing to keep the company intact and take care of your obligations to your spouse.

How the company will be valued (if appropriate)—set up a way to assess the value of the business. Common practice allows for independent appraiser to be hired. But it may be beneficial to require several to figure an average.

How the payout will occur—taking several years to pay out will help the business to survive.

Remember to be thorough and be fair, doing both will not only improve your chances of it being held up in court, it will ensure that you are doing the right thing for all involved.